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The Franchise Memorandum

Third Circuit Finds that Consent Decree Obligations Survive Termination of Litigation and Were Violated

In a dispute between Audi and two dealers, the Third Circuit Court of Appeals affirmed the district court’s conclusion that one dealer’s obligation in a consent decree to “forever quit” its interest in purchasing an Audi dealership survived termination of the litigation and the dissolution of a preliminary injunction and was enforceable. Audi of Am., Inc. v. Bronsberg & Hughes Pontiac, Inc., No. 20-2940, 2021 WL 5320848 (3d Cir. Nov. 16, 2021) (designated as non-precedential). Early in the lengthy litigation, the district court entered a TRO and preliminary injunction forbidding the putative selling dealer from consummating the sale of its Audi dealership without Audi’s contractually mandated approval. In subsequent settlement negotiations conducted with the Court’s assistance and memorialized in a consent decree, the buyer agreed to “forever quit” its interest in buying the Audi dealership, although it was allowed to purchase other assets. The litigation thereafter continued, with the dealers ultimately prevailing on many issues and the preliminary injunction being dissolved. When the litigation concluded, the two dealers again agreed to a sale of the Audi dealership. Audi again objected, claiming that the new agreement violated the consent decree. The dealers, on the other hand, claimed that the consent decree obligations had been dissolved upon termination of the litigation. The district court sided with Audi and voided the new purchase agreement.

On appeal, the principal issue was whether the consent decree survived termination of the litigation. The Third Circuit agreed that it did. The fact that the consent decree did not resolve all disputes between the parties did not mean that it was intended to be only temporary. Based upon the language of the consent decree requiring the putative buyer to “forever quit” its interest in the Audi dealership, it was clear that the parties intended the obligations contained therein to persist and not to dissolve at the end of the litigation as a preliminary injunction would. Accordingly, the district court retained jurisdiction to enforce the consent decree. The Third Circuit declined to resolve the question as to the standard of review applicable to the question of whether the consent decree had been violated. While the district court’s direct involvement in the drafting process might suggest heightened deference, as opposed to a situation where the court merely approved language drafted by the parties, the Third Circuit found that the violation was clear and would be affirmed under either standard.

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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